10-15-2013 03:16 PM

'Political brinkmanship' could ruin housing recovery


Interest rates could skyrocket if a debt ceiling deal isn't reached in Washington.




With the Oct. 17 deadline to raise the U.S. debt ceiling only two days away, the government shutdown now appears to be the least of the housing market’s worries.
The shutdown has been a throbbing headache for the mortgage market, which has been forced to slow the processing of government-backed mortgages as it waits for furloughed employees at the Internal Revenue Service, Federal Housing Administration, Department of Veterans Affairs, Department of Housing and Urban Development and Department of Agriculture to return to work.
But the possibility of a default on the nation’s debt would be catastrophic for all aspects of the housing market and derail its recovery, according to National Association of Realtors President Gary Thomas.
Thomas warned of the implications for the housing market last week during a testimony before the Senate Committee on Banking, Housing and Urban Affairs.
“The momentum of the housing recovery will be in serious jeopardy if Congress is unable to move past unnecessary political brinkmanship over raising the debt limit,” he said. “A default, or even the perceived threat of a default, could result in a harsh and long-lasting recession, which may be even more severe than the previous economic downturn.”
Homeowners could lose value and equity in their homes and home buyers would see interest rates jump and lending standards get even tighter, Thomas said.
He said that a 1 percent increase in mortgage interest rates could lead to as many as 450,000 fewer home sales this year because many home buyers would be priced out of the market. For example, a potential borrower with a $60,000 annual income who wants to pull a $200,000 mortgage would see their monthly mortgage payment jump by 10 percent in that instance.
“The debt ceiling could have a major affect on interest rates,” said Eric Wright, a senior loan officer at AmeriFirst Financial Inc. in Tempe, Ariz. “I would not be shocked if ... it went to a half-point increase in rates overnight.”
Kristena Hansen covers residential and commercial real estate.


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